Bezos needs to reinvent a business model, not journalism

It is now a week since Jeff Bezos, the founder of Amazon, announced that he was buying the Washington Post, in what could be the most exciting case of convergence between the new media and the old since the merger of AOL with Time Warner. But how might Bezos re-launch this venerable flagship of U.S. journalism? And what could his ownership of the Post mean for news businesses around the world?

These may seem strange questions for a column devoted mostly to controversies in public policy and economics, but newspapers today are a declining industry comparable to the steel and shipbuilding industries in the 1980s, and employ even more people at higher wages. Newspapers are therefore of great economic significance, not to mention their importance to democracy. Yet public discussion often assumes that journalism is technologically doomed. The Internet, it seems, is ineluctably turning news and analysis from a thriving industry, gainfully employing millions on decent incomes, into an unpaid hobby for philanthropists or self-promoters who will earn their living by other means.

From an economic standpoint, this fatalism is unjustified. If quality news and analysis have significant value to customers, then the people providing these services will eventually find ways to get paid. It is often claimed that the news has become worthless because Internet distribution involves zero marginal cost, but this is poor economics. The true cost of news lies not in distribution, but in the research, composition, selection and editing required for high quality writing. These costs are as high as ever today.

The real challenge to newspapers, therefore, is not the idealistic Internet cliché that ”information wants to be free.” It is the failure of traditional media companies to devise business models that turn the new distribution technology to their advantage. Historically, such failure is not surprising. Just as the railroad companies failed to adapt to cars and competed themselves into bankruptcy, traditional media moguls have proved clueless in harnessing the Internet. This is why the news businesses must look for salvation to managers such as Bezos, who treat the Internet neither as a curse nor as a libertarian utopia, but rather as a very efficient mechanism for getting consumers to spend money.

So far, Bezos has said little about his plans for the Washington Post. The few hints he offered in an open letter to editorial staff had the familiar naivety of the tyro news proprietor who thinks he can reinvent journalism: “Our touchstone will be readers, understanding what they care about — government, local leaders, restaurant openings, scout troops, businesses, charities, governors, sports — and working backwards from there.” As if that were not what all newspapers have always done.

The question Bezos ought to be asking is not how to reinvent journalism, but how to make journalism pay in the Internet world. The business model, not the content, is where Bezos needs to apply his formidable business acumen and intellectual powers. If he does this, he will surely come up with the obvious answer: If you want to make a profit from selling news, you must charge consumers its cost of production plus a profit margin.

Traditional media executives fail to understand this elementary business principle because newspaper costs have always been subsidized by advertising. The essential economic problem of the news business is that on the Internet, this subsidy disappears, because search-based classified advertising of the kind pioneered by Google is infinitely more effective than display ads that push unsolicited messages at readers, whether in print papers or on news websites. The survival of news media, therefore, will depend on charging consumers directly for what they read.

Unfortunately as they start to do this, traditional media companies are again stampeding in the wrong direction — towards subscriptions that demand annual payments from regular readers. This subscription model is almost as inimical to the Internet as the advertising model, since it tries to recreate the traditional local newspaper model of serving relatively small numbers of “loyal” readers, instead of the millions or even billions of casual users who can be reached via the Net. Much Internet reading will always be casual rather than loyal, since nobody will buy annual subscriptions for more than a few websites — perhaps a local paper, plus a global source such as Reuters or the New York Times, plus a weekly magazine. Yet thousands of sites will occasionally feature items of interest to millions of readers, who could be turned into profitable customers. If, say, 20 million occasional readers spend as little as $1 a year on a website, this will create twice as much revenue as 100,000 subscribers paying $100 each. The business objective must surely be to secure both revenue streams — and this is where Amazon’s success in managing large numbers of small transactions could come in.

As co-founder of thebrowser.com, a website that aggregates high-quality writing and experiments with payment systems, I am all too aware that conventional wisdom views micropayments as doomed to failure. According to most Internet gurus, readers will always demand free content and find it in abundance. But this consensus is being disproved by events. More and more newspapers are erecting paywalls and demanding subscriptions, eliminating free content. Meanwhile, consumer resistance to Internet payments is disappearing, as traffic moves to mobile devices, where data downloads are far from free.

The confluence of these two trends creates the right environment for websites to levy micropayments for high-quality online content. With consumers now paying hundreds of dollars annually for Internet downloads, newspapers are crazy to cede all this revenue to telecom companies, while offering their content free to non-subscribers or completely locking them out. What newspapers need are easy, frictionless mechanisms for charging their causal readers small amounts. Bezos and Amazon could provide this — and if they don’t, somebody else will.

Couldn’t agree more with the above.
We welcome Jeff Bezos and the Washington Post to use Prss.com for all their digital publications. Prss is in private beta with many of the major publishers and gearing up for its public launch. It supports new business models and helps to turn new distribution technology into an advantage.

Last night, for the first time ever, I got spam from The Washington Post – sent to one of my single-use email addresses, which they (or the person they bought it from) could not possibly have obtained using entirely legal means. The spam tried to direct me to some kind of “research questionnaire” and also tried to promote some kind of payment card offered by Amazon.

The whole thing was reminiscent of the worst kind of cheap-and-nasty spam from the 1990’s. If this is Mr Bezos’s grand idea, then it cannot fail soon enough.